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Politicians twisted purpose, design of Social Security

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Saturday January 12, 2013 5:17 AM

The Dec. 7 letter “Social Security didn't cause budget mess” from Bruce Bostick stated that
Social Security is “completely independent of the national budget.” I find that not quite correct,
in that the Social Security system is, at least, an enabler of the federal deficit.

“The security of the reserves for the Social Security system are solvent for the next 35 years,
according to the Congressional Budget Office,” Bostick wrote. Yes, but the funds are in the form of
IOUs from the federal government. And when it comes time for the Social Security system to redeem
the IOUs, just where will the federal government, already $16 trillion in debt, get the money to
pay the system so it can pay retirees?

The government can cut benefits or increase the retirement age (we are living longer than when
the system was established); raise revenue through taxes; or print more unsecured money. Each path
would require that the retirees pay, in one form or another.

Until the administration of President Lyndon B. Johnson, the Social Security reserve funds were
a separate item in the federal budget. Johnson and the Democratic Congress lumped the reserves into
the general-revenue fund and started issuing the IOUs. This gave that Congress and subsequent ones
more revenue and, over time, more benefits for those paying into the system.

The fund then shifted from being backed by cash to debts, in the form of IOUs backed by the
federal government. Meanwhile, the system, established when there were nearly 100 workers per
recipient, now has only three workers per recipient. For decades, congressmen told the elderly, “
Vote for me, and I’ll increase the benefits.” And they did, for generations.

If the solution is to print money to cover the shortfalls, then the money received will have
less buying power. If the path taken is to raise taxes on commodities, then the retirees will be
paying more for needed items in order to provide the money to the federal government to redeem
their IOUs to pay the claims of retirees.

If Congress raises the retirement age, it will change the public understanding of the system
since the 1930s. If more money is borrowed for the redemption, then the debt and interest of the
government will be further increased, if Congress can find sources that will loan it money.

Congress created this situation by creating benefits that now are entitlements covering more
that just the basic needs of the elderly.